Decius wrote:

So your position is that there is no wider economic problem caused by the subprime mortgage meltdown and everything's cool?

Hardly.

My position is that contemporary international markets are complex regardless of the level of transparency. Even if you eliminated every asymmetry you would not make it simple and manageable in the way that Mihm seems to want. You would dramatically reduce its productivity and therefore its utility, but it would still be too complicated to "manage", and it would still not be "safe".

The market is not supposed to be safe. In Kedrosky's rant about Stein, he writes:

Particularly egregious, at least to me, was the implicit claim that the capital markets are there in large part to help people save for old age. No they're not, and if regulators or governments ever decided to enforce that particular view we would likely have a market crash. The market are there to provide liquidity. Period. And if by doing that people are able buy stock and bonds in companies whose value appreciate, that's great. But markets whose core notion is wealth accumulation for individual savers, and markets whose main object is liquidity creation, are very, very different things, as even a lapsed economist Mr. Stein should know.

And if you accept Janszen's view that "The bubble cycle has replaced the business cycle," then it is no longer reasonable to expect much utility from the regulatory mechanisms for which Mihm seems so nostalgic.

Mihm conflates transparency and controllability, whereas Janszen would argue that the bubble cycle has become a collective imperative that no regulatory action can manage to terminate. Nor would a regulator want to, because the pain of ending it would be even worse than the pain of continuing on to the next bubble.

RE: The black box economy